It was a miserable year for Intel and the rest of the semiconductor industry. The business slowdown we entered toward the end of 1984 worsened in 1985. The slump extended generally across the computer-related industry, reflecting much lower market growth than expected. Intel’s customers, who had ordered heavily during the 1983-1984 period of great demand for semiconductor products, found themselves with too much inventory.
As a result, Intel’s revenues were down 16% from the previous year’s record $1.6 billion, and net income for 1985 essentially disappeared. The company experienced operating losses in the second, third, and fourth quarters of the year, and earnings per share for the year were $.01.
We took several steps to adjust Intel’s operations to the level of actual business and to address the severe pressure on profitability that resulted from the pricing levels. These included layoffs, plant closings, salary cuts and time off without pay, as well as delaying the completion of new facilities until the need for them is again apparent.
The continuing rapid evolution of technology and short product life cycles in our industry necessitate large and continuing investments in research and development for product leadership. Intel increased R&D spending to $195 million or 14.3% of revenues, maintaining all critical programs and enhancing those we deemed appropriate.
The aggressive pricing for component and system products that exists in the marketplace has served to focus our efforts toward increasing productivity, not only in the factory but in engineering and administration chores as well. Our factories have never performed better. Yields (the number of good chips we get from a silicon wafer) are at all-time highs and the output per unit of labor climbed all year. Problems associated with the 1984 start-up of the world’s first six-inch-diameter wafer processing facility in Albuquerque, New Mexico, are behind us and we are now processing six-inch wafers in two other silicon plants as well.
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